The US is pumping more oil than at any time: at a rate that has reached 13.2 billion a day. Shale production is also at or near a record as industry leaders EOG Resources, Devon Energy, and Diamondback Energy operate at near capacity. OPEC+ has tightened exports, which should make these American oil companies more profitable by pushing oil prices up. Investors in these companies should be making large profits based on rising stock prices. It hasn’t worked that way. Over the last year, big American oil companies have been among the worst large-cap public corporation investments.
The flagship of American big oil is Exxon Mobil. Its 2023 revenue is projected to be just below $400 billion, making it the third largest company in the US based on that yardstick, behind only Walmart and Amazon.com. Net income will be close to $60 billion. Exxon Mobil’s market cap is $410 billion. On a revenue-to-market cap basis, it does not have the premium that tech companies like Amazon and Apple do. However, Exxon, unlike these tech companies, carries a yield of 3.8%
Exxon Mobil has a problem. Exxon’s stock is down almost 10% in the last year, while the S&P 500 is up 24%. Among US mega-cap stocks, it is among the poorest performers. Its financials were relatively weak over the past year because the oil price has been low.. Crude reached a 2021 high in October of that year at $83. It surged above $100 in February 2022, hit that level again, and stayed at or slightly below that level until it peaked in June 2022 at $121. For most of 2023, crude has traded below $80, with a brief move above $90 in mid-September. It has now fallen to $70.
Oil was not projected to be $70 in early 2024. The slowdown of traffic through the Panama Canal because of drought and through the Suez because of threats to shipping safety should have caused a spike. This problem and geopolitical trouble in the Middle East would have typically moved crude closer to $90 or above.
Exxon, along with the other large oil companies in the US, Europe, and the Middle East, have
done too good a job raising production. Additionally, Venezuela’s crude supplies are likely to move up sharply. It is the largest nation in the world based on proven oil inventory. Its ancient infrastructure is being rebuilt because of an end to US sanctions taken against the government of Nicolás Maduro Moros, who has been the President for a decade.
Ironically, a multinational like Exxon should be such a poor investment because it is doing so well producing oil at relatively low prices.